Correlation Between REC and Power Finance

Can any of the company-specific risk be diversified away by investing in both REC and Power Finance at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining REC and Power Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between REC Limited and Power Finance, you can compare the effects of market volatilities on REC and Power Finance and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in REC with a short position of Power Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of REC and Power Finance.

Diversification Opportunities for REC and Power Finance

0.45

Correlation Coefficient

REC  Power Finance

Very weak diversification

The 3 months correlation between REC and Power is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding REC Limited and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance and REC is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on REC Limited are associated (or correlated) with Power Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Finance has no effect on the direction of REC i.e., REC and Power Finance go up and down completely randomly.

Pair Corralation between REC and Power Finance

Assuming the 90 days trading horizon REC Limited is expected to under-perform the Power Finance. In addition to that, REC is 1.03 times more volatile than Power Finance. It trades about -0.04 of its total potential returns per unit of risk. Power Finance is currently generating about 0.02 per unit of volatility. If you would invest  41,300  in Power Finance on April 25, 2025 and sell it today you would earn a total of  615.00  from holding Power Finance or generate 1.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

REC Limited  vs.  Power Finance

REC Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days REC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, REC is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Power Finance

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Power Finance are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Power Finance is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with REC and Power Finance

The main advantage of trading using opposite REC and Power Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if REC position performs unexpectedly, Power Finance can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Power Finance will offset losses from the drop in Power Finance's long position.

The idea behind REC Limited and Power Finance pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.